According to Lux Research, that is the case for the Tesla Model 3, for example.
When James Dyson canceled his project for an electric car, that was quite a disappointment. On top of that, he recently said that EVs are “unrealistically cheap.” In other words, that he could not sell his electric SUV at a profit. But is that true for the whole industry? InsideEVs asked that to specialists, and the first one to answer was Lux Research. According to its senior analyst Christopher Robinson, EVs can be (and some are) lucrative.
“I would argue quite a bit has changed with respect to electric vehicles since Sergio Marchionne made his comments about the 500e (being a compliance car). The next-generation Fiat will only be available with an electric powertrain. There are two reasons behind this shift: significant reductions in battery prices over the last decade and increasingly stringent environmental regulations around the world.”
Price reductions regarding the battery pack are crucial. As Sandy Munro once said, the powertrain represents 51 percent of the price of an electric car. But there are more aspects that make EV production become a business more than a commitment to clean transportation, according to Robinson.
“Vertical integration and scale are key to profitability. Tesla hasn’t turned an annual profit as a company just yet, but does make the Model 3 profitably. It’s produced at a larger scale on a dedicated electric platform – something few others have yet achieved.”
The Lux Research analyst said that another leap in EV profitability is the development of an all-electric vehicle platform. If that is a good strategy, as Robinson says, we can conclude Volkswagen and PSA are a step ahead compared to Mercedes-Benz or BMW, respectively, with their MEB and e-CMP platforms.
“Designing an electric vehicle platform is the cheapest way to make an electric vehicle, but smaller automakers might not have the production capacity to justify adopting an entirely new manufacturing process or designing a new all-electric platform yet.”
In that sense, Volkswagen’s strategy of supplying the MEB to smaller OEMs may pay off. We have already said the company wants to turn the MEB into the modern VW Beetle floor pan. That is another similarity between the ID.3 and the Beetle, as a recent video pointed out.
With that in mind, legacy automakers with the right strategy may efficiently transition to electric mobility in a more natural way than any EV startup may establish itself. Apart from Dyson, the recent case of BYTON, the difficulties of NIO, and some other stories show Robinson has a good point.
Batteries and platforms are the most critical aspects of EV profitability, but not the only ones, as the Lux Research analyst stresses:
“A design trend on efficiency is emerging; customers don’t care about kWh, they care about how many miles of range a vehicle provides. To make vehicles profitably, automakers are now focused on minimizing the size of the battery pack to meet range targets. Technologies include more efficient silicon carbide-based power electronics, higher efficient motors, and battery management systems that enable a wider state-of-charge window to be used.”
As we mentioned many times, the range is directly connected to efficiency. Squishing more miles out of the same battery pack requires less mass, aerodynamic drag, and more efficient powertrains. Although electric motors are efficient by nature, they can always benefit from new technology, as Magnax and Infinitum have already shown us.
Why has Dyson given up?
That said, why has Dyson given up if other manufacturers have succeeded in selling EVs profitably? According to some sources familiar with the matter, it was probably because Dyson always charges way more than the competition for its products because of its engineering excellence.
When you apply that to vacuum cleaners, people agree to pay $400 instead of $200, but that does not fit cars that well, especially if you do not have a well-established reputation for building them.
Alfred P. Sloan has a famous story related to this in his book “My Years With General Motors.” The three-decades CEO of GM was in a meeting for the presentation of a new project that would cost too much money to produce. He then asked his team what the purpose of the company was.
Someone said it was to produce cars. Sloan corrected that person by saying GM existed to make money producing cars. Unlike what James Dyson said, that is what many manufacturers, including Tesla, are currently doing.
The fact that his company did not find a way to do the same does not imply EVs are “unrealistically cheap.” Actually, we hope they get even more affordable and still turn a profit for the companies that produce them. That’s the best way to push EV adoption and wave oil goodbye in transportation.